The increasingly fractious Labour leadership contest is threatening the survival of the embattled Coalition after senior Fine Gael figures warned that there will be "no concessions" on the economy.

The fall-out comes after both Labour candidates, Joan Burton and Alex White, signalled a major shift in the Government's austerity policies in the race to replace Tanaiste Eamon Gilmore, who was forced to resign in the wake of last week's elections.

However, the new Children's Minister, Charlie Flanagan, told the Fine Gael parliamentary party last week that "we still have a job to do" and that the Government would not "deviate on the basis of the Labour narrative".

Speaking to the Sunday Independent, Mr Flanagan also warned against the coalition partners "descending into the factionalism" which he said had led to the collapse of the Fine Gael-Labour government in the 1980s.

The new Justice Minister, Frances Fitzgerald, expressed concerns about "bickering or disagreement" between the two parties and warned about the instability this could cause.

However, there is growing anger within Fine Gael this weekend at the increasingly assertive stance taken by Labour in what will be a month-long campaign to replace Mr Gilmore.

There is also huge resentment that Labour has sought to blame Fine Gael for the medical cards fiasco which was presided over by leadership contender Alex White, the Minister of State for Primary Care.

The two candidates for the leadership, Mr White and Social Protection Minister, Ms Burton, are under massive pressure from TDs, senators and the Labour electorate to adopt a hardline position after six years of austerity.

In an interview with the Sunday Independent today, the frontrunner, Ms Burton, said the country needed to "move away from the current economic narrative of pain and penitence" and warned that an austerity model "predicated on the trickle-down effect from the wealthy" would not work.

Mr White, meanwhile, ratcheted up tensions even further with a demand for answers from the Taoiseach, Enda Kenny on the resignation of Garda Commissioner Martin Callinan.

"I wasn't happy, I have to say, with the level or the quantity or the quality of information we had on what happened that day," he said.

And yesterday two of Ms Burton's closest supporters also warned that the limits of tolerance for austerity policies had been reached.

Dublin South-West TD Eamonn Maloney told this newspaper: "To go into a seventh year of cuts without any relief would be totally irresponsible. Joan and I had a chat and how she acts will be a test of her mettle," he said.

Whoever won the leadership, he added, "the last Budget was as much as people like myself will tolerate".

Dublin South Central TD Michael Conaghan warned: "What we are expecting from people in leadership, what people have said is that austerity has run its course. I imagine that when people say that then they mean it."

However, at a Fine Gael parliamentary meeting last week, the Fine Gael backbench TD John Deasy warned: "There should be no concessions to Labour when it comes to the economy."

He continued: "If Fine Gael returns to populism to appease Labour, the people will destroy us. The Labour Party destroyed a country that was already broke in the 1980s. We were elected to fix the economy – if we give into them, Fianna Fail will clean us out."

Yesterday, the Fianna Fail leader Micheal Martin told the Sunday Independent that his party would be targeting former Fianna Fail voters who had voted for Fine Gael in the last election.

"We are getting an indication that people are returning – people are coming back," he said.

Last week, Finance Minister, Michael Noonan said the level of adjustment in the Budget in October would depend on economic growth, not on "political pressures".

He added that it was too early to say he would implement €2bn in cuts that had been agreed with creditors.

Ms Burton told this newspaper: "Though it is not going to be easy, it is now possible, after the groundwork of the last three years, to have a Budget centred on growth.

"Given the amount of heavy lifting that has been done, the potential for recovery now is significant."

Mr White, meanwhile, emphasised the need to pay for public services. "If there is room to ease up, I would be looking as much to maintaining public expenditure on health, education and social protection as I would in relation to the tax issue."

In an indication of further tension, Fine Gael TDs were yesterday also critical of Mr White's attempt to seize the political capital from the medical cards U-turn.

"Some of us have been beating this drum for a long time. It is a bit late in the day for Labour to come on the pitch now," one TD said.

In the leadership contest, Ms Burton is believed to be planning a clear-out of the Labour old guard, with Ruairi Quinn, Pat Rabbitte and Eamon Gilmore all facing the cabinet axe if she becomes Tanaiste.

She remains the clear frontrunner, despite the entry of Mr White. Labour backbencher Arthur Spring is still seriously considering running for the leadership and he will announce his decision tomorrow.

Ms Burton is thought to have struck a deal with Brendan Howlin, who will remain as Public Spending Minister.

She also highly rates Alan Kelly, the junior transport minister, who will be promoted whether he wins the deputy leadership or not.

With a cull of so many Dublin-based ministers, Ms Burton may also be obliged to promote Mr White, depending on how he performs in the leadership contest.

However, Ms Burton said she had not yet thought of her Cabinet line-up.

She added: "I don't really want to sound presumptuous because I have an election to fight, I have the members of the Labour Party to meet and to talk to and, to be honest, I don't want to run ahead of myself in making those decisions now.

"I first have to talk to the members and secure their trust and their support for becoming leader."